Just how bad is the student debt crisis? According to the Federal Reserve Bank of St. Louis, there is over $1.43 Trillion of student loans outstanding in the US. This is nearly 3 times the amount that existed just 10 years ago. To make matters worse, while this radical increase in student loans has been occurring, there has been virtually no increase in the median wage for college graduates. From 1990 to 2015, there was only a 1.6% increase in wages, after adjusting for inflation, while the average student loans for a college graduate has increased nearly 164%.1
This is a huge problem and everyone seems to be talking about it, so why does it persist? Why don’t we quit doing this to ourselves? I have heard stupidity defined as continuing to do the same thing while expecting a different result. I think that this definition is applicable to this student debt crisis. If students continue taking on more and more student loans regardless of the fact that their incomes are barely sufficient to repay them, then this crisis is going to continue getting worse and worse.
Some students in the last election were hoping for a bailout from the government to solve this issue. Others were hoping for free college. Now that these options seem most unlikely, we are left wondering what we should do. Should people quit going to college? Should parents take on more of the burden for their children? Should colleges slash tuition?
Not believing that any of those options are very viable, I think that we must start thinking differently about how we pay for a college education. Despite what a college financial aid office may tell you, there are a variety of ways to go through college that do not require huge amounts of student debt. Until people begin to approach paying for college differently, nothing is going to change. So how do we dominate student debt?
Here are a few simple ideas that will help parents and students think through how they can limit the amount of student debt that is incurred pursuing a college degree:
1) Set a max goal for student debt. Consider the total cost of education, all the sources for payment, and then set a goal for the maximum amount of debt you are willing to incur. This maximum amount should be based on your expected salary when you graduate and how quickly you want to pay off the debt. I would recommend setting a goal of paying off the debt as quickly as you can. Until you get rid of the debt, it is going to weigh you down.
2) Take a lighter class load and get a part-time job. This can reduce the amount you will need to finance your education. It may take a little longer to graduate, but you will be in a much better financial position if you extend the time to graduate in order to reduce your debt. This option has the added benefit of giving the student a higher appreciation of the degree that they earn.
3) Do NOT take out the maximum loan amount. Plain and simple, this is almost always a mistake. Don’t believe that just because you qualified to borrow a certain amount that you need it all. At most, take only what you need to cover tuition and some very basic personal needs. Don’t take out loans so that you can see movies, go out to eat, or buy clothes. That is a huge mistake. Using student loans to fund lifestyle desires is a very foolish thing to do.
4) Take required classes from a local community college or online. Taking classes this way is much less expensive and offers a great deal of flexibility. You can transfer these credits to your university and still get a degree from the college you want to. There is a company out there called Lumerit that specializes in helping you plan your degree in the most cost-efficient way possible. They are masters at helping you determine which classes can be transferred to your chosen university.
5) Don’t change majors. I know this is a hard one, but changing majors is one of the biggest factors in increasing student debt. If you are unsure of what you want to do after college, spend some time learning about what you like to do and what your talents are. This may require you to delay starting college for a semester or two, but this time is well worth it.
The bottom line is that you need to know where you are headed and how you are going to get there. If you just let college and student debt happen to you, then you are going to regret it later on. Take control of your college costs and be proactive about how you are going to pay for them. A little planning now will go a long way toward your future financial well-being.